College Costs, Household Savings, and Stock Market Participation
Posted: 12 Nov 2019
Date Written: August 29, 2019
This paper studies the effect of changes in expected college costs on household savings, asset allocation, and stock market participation. Using household-level data for households with children, I first find that a $1,000 increase in in-state college tuition leads to a 1.7% higher probability of stock market participation and larger savings but does not affect the share of risky assets. After that, I exploit the introduction of a financial aid program for students from military families in 2009 and show that this program had a negative effect on the probability of stock market participation, the share of risky assets, and savings. Finally, I investigate the relation between in-state college tuition and investment in 529 college savings plans using portfolio-level data and demonstrate that in-state college tuition is positively associated with flows to these plans.
Keywords: college tuition, savings, portfolio choice, stock market participation, 529 plans
JEL Classification: D14, G11, I22, E21
Suggested Citation: Suggested Citation